Fiscal unity between Dutch subsidiaries of Israeli parent company need not be permitted
The Dutch Supreme Court ruled that the fiscal unity regime need not be applied to Dutch based sister companies with a common parent company in Israel.
15 December 2017
In 2014, the European Court of Justice ruled that the Dutch fiscal unity rules infringe on the freedom of establishment. After all, a Dutch based parent company could form a fiscal unity with two Dutch based subsidiaries. However, had the parent company been established in another EU Member State, no fiscal unity could be formed. The European Court of Justice judged that The Netherlands should also permit a fiscal unity exclusively between the two Dutch subsidiaries of a parent company based in the EU or the EEA which - by the way - qualifies for application of the fiscal unity regime, without consolidating this parent company in that fiscal unity. This has been enshrined in Dutch law in the meantime.
Facts and circumstances
The decision of the European Court of Justice led to the question whether this judgment would also be relevant in third country situations. The present case involved an Israel based parent company that owned all the shares in two subsidiaries, likewise based in Israel. The subsidiaries held shareholdings in three Dutch based companies. Two of those Dutch companies together held all the shares in a fourth Dutch company. The Dutch based companies submitted a request for application of the fiscal unity regime.
The Dutch Supreme Court ruled that the request for a fiscal unity was denied correctly and by so doing reversed the judgment of the Arnhem-Leeuwarden Court of Appeal. That Court of Appeal argued that a fiscal unity between the Dutch resident companies should be permitted, and denial of the fiscal unity constituted a violation of the non-discrimination clause in the The Netherlands-Israel tax treaty.
In its ruling the Supreme Court states that reliance on the non-discrimination clause is in principle possible. However, the Supreme Court further judges that the non-discrimination clause is not being violated in the case under consideration. The requested fiscal unity of the subsidiaries exclusively based in the Netherlands, having common Israeli shareholders, should be compared with a similar domestic fiscal unity in which those common shareholders are not consolidated in the fiscal unity either. Since a fiscal unity between the subsidiaries only would have been denied in that case as well, the non-discrimination clause is not violated in the present case.
It had already been established that reliance on EU law in the present case would not be of any avail to the taxpayer. Thus, the Supreme Court does not refer to the freedoms of movement or the previous case X (C-40/13). The Supreme Court obviously applies a more restrictive interpretation of the prohibition of discrimination under the tax treaty than of the operation of the prohibition of restrictions under European freedoms of movement. At last, this ruling clarifies whether a sister fiscal unity should also be permitted in non-EU situations.
Source: Dutch Supreme Court of 15 December 2017, no. 16/02919, ECLI:NL:HR:2017:3128